Why are wealthy Indians taking money out of the country? | | Business and economic news

Amit Ranjan was stunned. For years, financial advisors recommended only domestically developed investment options to Indian tech entrepreneurs and angel investors. , they said 20% of his portfolio should be invested outside India.

“I couldn’t believe what they were saying, so I asked them to repeat it,” he recalls. Ranjan then called his friend to see what the advisor was talking about. They confirmed: they had received similar guidance.

And it shows.

Wealthy Indians are investing abroad at record rates, according to data from the country’s central bank. According to the Reserve Bank of India (RBI), in fiscal year 2021-22, Indians directly injected $1.69 billion into foreign bank deposits, stocks and bonds, and the purchase of offshore real estate. This is about 40% higher than his 2020 to 2021 figures, with Indians investing abroad in real estate, deposits, debt and equities in 2014-15 when Prime Minister Narendra Modi’s current government took office. Almost six times $292 million. , promises to transform the country into a global wealth magnet.

Domestic mutual funds are also increasingly looking to invest their clients’ money abroad. banned new investments abroad through Indian mutual funds due to concerns that the law would be breached for the first time. That ban was lifted in June, but experts expect the easing to be temporary as the cap remains the same.

And rich Indians aren’t just sending money abroad. 8,000 Indian billionaires are also expected to pack up and move elsewhere this year, according to investment migration consultancy Henley & Partners.

The outflow of money and billionaires is driven by a variety of factors, from the desire to geographically diversify investments to searching for boltholes after the COVID-19 pandemic, analysts say. But this outflow of wealth reduces the pool of investment that could otherwise be made in India, reducing potential tax collection. It also undermines India’s pitch as a country to invest in for the rest of the world.

“This is not good for India,” Ranjan told Al Jazeera.

cross-border investment in india

According to Joseph Thomas, head of research at Mumbai-based financial planning firm Emkay Wealth Management, the rise in total Indian investment abroad is no surprise. According to Credit Suisse, the number of billionaires in the country has surged from 170,000 in 2010 to nearly 700,000 in 2020. “This has naturally resulted in people looking for opportunities other than rupee-denominated commodities,” Thomas told Al Jazeera.

A growing number of companies are also providing access to overseas markets, including leading Indian banks such as HDFC and ICICI, portfolio managers such as Emkay, and new-age digital banking platforms such as Kristal.ai. Today’s Indian investors understand the “importance of geographic diversification,” Thomas said.

But experts say the pandemic has sharply increased India’s appetite for cross-border investments. As global tech and health stocks rise, so too has interest among Indians to buy stocks in these sectors. “Especially when it comes to technology, these are products and brands that Indians are very familiar with as users, so they are more relatable,” he said.

The pandemic has also created new incentives for Indians to buy homes abroad. Akash Puri, Global Business Director of India Sotheby’s International Realty, said, “There is growing interest in cities and countries that are seen as having successfully fought COVID-19. He is an example. In 2021-2022, Indians will spend a total of about $113 million on overseas property purchases, compared with about $63 million in the previous year.

Dollar-denominated markets like New York and Dubai are also popular, and a rising dollar against the rupee means that Indian property owners will benefit even if local values ​​of properties do not rise, Puri said. told Al Jazeera. Other popular destinations where wealthy Indians are buying homes include London and Portugal. Portugal is a country that offers residency by investment and requires an average stay of just one week per year.Portuguese passport holders can stay and work throughout the European Union without a visa.

With central banks in various countries, including the United States, raising interest rates, Puri expects demand for offshore properties to rise only among wealthy Indians. For example, in the United States, higher interest rates will make mortgages more expensive for residents to choose to lease rather than buy. This will lead to a softening of prices and an increase in the stock of homes available to Indians, which are mostly paid in advance. “It could be a new window of opportunity for Indians,” Puri said.

Rising interest rates and the rising value of the dollar against the rupee also explain why Indians are storing more cash in bank deposits abroad than ever before, experts say. These always-safe deposits now bring in more returns than were previously possible.

safe haven

Since the pandemic, Indians have increasingly sought safe destinations not just for wealth but for themselves, causing an exodus of billionaires. Global economic uncertainty and war-like conflicts in Ukraine have only added urgency to this change, analysts said. It is becoming more important to have choices across multiple jurisdictions as to where people can live in the United States.” “And for those who can afford it, residency and citizenship through investment is the easiest, quickest, and most effective way to achieve it.”

None of this is reversible. “As the country’s standard of living improves, more and more wealthy people are expected to return,” said the investment migration consultancy.

For now, however, experts say the Indian government’s approach to citizens investing abroad is driven by fear of uncontrolled capital flight. In addition to his $7 billion mutual fund limit, India also bans individuals from sending abroad more than $250,000 each year. These limits help the RBI manage exchange rates and maintain foreign exchange reserves at acceptable levels.

But ultimately, money tends to find ways around such restrictions, Ranjan said. “We should think less about how to stop people from investing abroad, but more about making it attractive for them to keep money in India,” he said. “It’s a matter of how you do it.”